Stock index futures were sold sharply on news of a 7.1 earthquake off the coast of Japan and a government issued tsunami warning. Thankfully, the tsunami warning was canceled and damage turned out to be minimal; accordingly the market recovered. However, chaos in Washington and renewed drama in Libya might limit the upside potential.
Crude oil is at a fresh 2.5 year high; the rally was triggered by news of the Japanese earthquake but didn’t seem to react to news of little damage from the event. Some analysts are attributing gains in crude to renewed fears and doubts in regards to the long-term viability of nuclear power and the subsequent increase in demand for other forms of energy. We look at it as more of an “excuse”; traders have been looking for the next reason to buy into crude and this is the best they have gotten. Last week we had mentioned we were expecting a rally in May crude to the $110 area, and we finally got what we were looking for. That said, now that we are here it feels like there is still some room to move. Perhaps $112ish will be seen in the front month contract on this move. Sooner or later, the reality of higher energy prices will begin to weigh on equities.
From Wednesday, but still valid:
The Euro seems to be getting a bit lofty. Although 1.34 is just around the corner we have our doubts as to whether it will be able to sustain the move. Don’t forget, the Euro and the equity markets tend to move together. Sorry for the redundancy, but we are patiently (stubbornly) looking for the mid to high 1340’s in the S&P but will be turning bearish from there. The Russell is a little trickier. It appears toppy but we can’t rule out 864ish as it is dragged further into overbought territory by the S&P.
It’s a bull, but we still think the best trade from here is to sell sharp rallies. Look for resistance in the S&P near 1335 and again at 1347, our 857 number in the Russell has worked well but beyond that resistance will be in the mid 860’s. Seasonal tax selling could be right around the corner.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track ‘n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Please note: An e-mini S&P and e-mini NASDAQ chart are used because they better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini. Unless otherwise noted, profit and loss will be based on the mini version.
For more from Carley, visit DeCarley Trading and register for her free e-newsletter.